Congress Passes Tax Hike Prevention Act

There seems to be more than enough in the new tax cut bill, which will soon become a law, to keep every income level happy. The Tax Hike Prevention Act of 2010 extends the tax cuts first implemented during President Bush’s tenure and adds more benefits for everyone.

For another two years, the marginal income tax rates (10%, 15%, 25%, 28%, 33%, and 35%) will stay the same. These are the income tax rates for 2010, and this tax rate comparison shows what the rates would be if the cuts were to expire. The lower capital gains tax rates will also be extended for two years, including a rate of 0% for those in the 10% or 15% tax brackets.

The bill changes the income level affected by the Alternative Minimum Tax (AMT). The AMT hasn’t been indexed to inflation, so over time, more and more households that consider themselves “middle class” have been falling into the sweet spot. The bill changes the amount of income exempt from the AMT in 2010 as well as 2011 so fewer taxpayers will be affected by the AMT.

For another two years, students and former students will benefit from the American Opportunity Tax Credit. This tax credit was a significant benefit increase from the previous educational tax credits, and it affects more taxpayers.

The estate tax was scheduled to be reinstated in 2011. Prior to 2010, only 0.3% of taxpayers who left anything of value to their heirs upon death also left a tax bill. The estate tax affects a tiny percentage of the population, but it is a hotly contested issue. When the estate tax returns in 2011, the first $5 million of wealth will be exempt (or $10 million for couples), so this tax will affect even fewer than the 0.3% previously. The top tax rate will be reduced from 55% to 35%.

Also, when an investment in an estate is later sold by an heir, they’ll only owe tax on the stepped-up basis. In other words, the gain will be calculated based on the value of the investment when it was inherited, not when it was originally purchased.

The payroll tax will be reduced by 32% for everyone who pays into Social Security. The rate will drop from 6.2% to 4.2% for one year, effectively replacing the Making Work Pay credit, but affecting more taxpayers.

The child tax credit will remain $1,000 rather than revert back to the $500 it was before the Bush era tax cuts.

Lots of things going on. I’m not quite sure how reducing payroll tax in SS will help a program facing insolvency, but I pretty much came to expect most of the things on the bills with Congress now split.

Shortsighted and dumb. Social Security withholding changes – super dumb. For those of us who pay taxes, we got off lucky – but at what price? Future problems are growing and our “leaders” just continue to kick the can down the road towards our grandkids.

Yeah, it’s pretty sickening. No sitting politician can remotely articulate how we’re going to pay for this, the mass spending from the past few years or the projected deficits into the future. He who promises most gets reelected. Shame on Americans for not realizing/asking questions and going along with the scheme.

FYI: My real estate agent was upset one day. He told me when they passed the lower ss tax they tagged on something at the end of the bill. When someone now gets a government loan for a home, there are additional points (if you pay points) that add up to 90.00-125.00 more a month on a mortgage payment. His information came from an industry journal he recieved in February 2012.

voters are dumb and neither party is serious about reforming medicare, medicaid, & cutting waste in defense/homeland security because that would help reduce the deficit and this country’s debt going forward.

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